Correlation Between Indian Metals and ICICI Securities

Can any of the company-specific risk be diversified away by investing in both Indian Metals and ICICI Securities at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Indian Metals and ICICI Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indian Metals Ferro and ICICI Securities Limited, you can compare the effects of market volatilities on Indian Metals and ICICI Securities and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Indian Metals with a short position of ICICI Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and ICICI Securities.

Diversification Opportunities for Indian Metals and ICICI Securities

0.49

Correlation Coefficient

Indian Metals  ICICI Securities

Very weak diversification

The 3 months correlation between Indian and ICICI is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and ICICI Securities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICICI Securities and Indian Metals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Indian Metals Ferro are associated (or correlated) with ICICI Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICICI Securities has no effect on the direction of Indian Metals i.e., Indian Metals and ICICI Securities go up and down completely randomly.

Pair Corralation between Indian Metals and ICICI Securities

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 2.83 times more return on investment than ICICI Securities. However, Indian Metals is 2.83 times more volatile than ICICI Securities Limited. It trades about 0.25 of its potential returns per unit of risk. ICICI Securities Limited is currently generating about -0.06 per unit of risk. If you would invest  67,834  in Indian Metals Ferro on October 6, 2024 and sell it today you would earn a total of  22,256  from holding Indian Metals Ferro or generate 32.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Indian Metals Ferro  vs.  ICICI Securities Limited

Indian Metals Ferro

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

ICICI Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICICI Securities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ICICI Securities is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Indian Metals and ICICI Securities

The main advantage of trading using opposite Indian Metals and ICICI Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Metals position performs unexpectedly, ICICI Securities can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ICICI Securities will offset losses from the drop in ICICI Securities' long position.

The idea behind Indian Metals Ferro and ICICI Securities Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.